Why the United- US Airways connection might not fly

The prospect of a merger between United Airlines and US Airways sent share prices of both airlines up this morning. Investors are reasoning that the combined carrier will be able to reduce capacity—3% nationally according to one analyst—and thus raise prices. There’s too much capacity in the U.S., so none of the carriers can charge enough money per seat, on average, to be consistently profitable. The airlines gouge us at Christmas and give away seats in May. Throw in fuel prices that can gain altitude quickly and you have an industry that has lost more than $20 billion in the last decade. Only airlines buy round trip tickets to the bankruptcy court.

Whatever you feel about United and US Airways, and I would call them middling (although heaven help us on a bad USAir day), you can’t fault the logic of a merger that would increase fares, since these guys really need the money.

Wait a minute, watch me.

First of all, as industry consultant Boyd Group has pointed out, capacity has a way of hanging around: the Delta/Northwest merger hasn’t reduced capacity at combined outfit. But even if a merged US Airways/United parks some planes in the Arizona desert and eliminates overlapping flights from, say, JFK to LAX, there’s always someone like Virgin America, JetBlue or Southwest who smells opportunity. That’s if they can get their hands on the airport slots, but even if they can’t get slots at JFK, they can look to nearby airports like Stewart International. However they do it, the newer players relish taking on the old line carriers because the service the newer guys offer is, shall we say, very competitive.

Nor will the merger prevent new airlines from giving it a go. This is one of the crazier aspects of the airline game: the barriers to entry aren’t all that high. What do you need. Jets? No problem—they are available by the dozen, with cheap leases, since so many were taken out by the recession. Pilots? How many would you like, since there are thousands of highly-trained, experienced, air jockeys waiting with bags packed. Airline executives, air and ground crews? Name your price. For some strange reason, people fall in love this industry; they also love employment. Regulators? Oh, please. The biggest problem you’ll have is getting past the other airlines, which will seek to shoot down your FAA certification at every turn. Nope, you just need money, and while that is tight right now it won’t always be. That’s why there have been more than 500 startups since deregulation began in the late 70s.

The fact that most of them have failed won’t stop anyone from trying again. And the fact that most mergers don’t work won’t stop the legacy airlines from trying to make their problems go away by making a name disappear.